This is post by Elizabeth Wark. Elizabeth is a barrister at Three Doctor Johnson’s Buildings specialising in civil and family law. She tweets as @ElizabethWark7
The Covid pandemic has profoundly affected lives and livelihoods. This blog explains a family court decision on a husband’s application to set aside a (divorce) financial settlement order made just as the pandemic hit, and the legal principles applied.
The Applicant Husband applied to set aside a financial remedies order entered into by agreement at a Financial Dispute Resolution appointment (FDR) held on 12 March 2020. The Respondent Wife cross-applied for the same order to be enforced against him.
The main asset of the marriage was the family business, a company which distributed printers and photocopiers. The stock was manufactured in China, purchased in Germany (using Euros) and sold to customers in the UK. It was valued by a single joint expert as having a gross value of £3,500,000, with an owned business premise having a value of £1,330,000 and little debt secured thereon.
The family business was the principal asset of the marriage and the parties were of otherwise fairly standard means. The former matrimonial home had net equity of £461,724. An additional property had net equity of £67, 698. The Wife’s pension was worth approximately £183,167 and the Husband’s £374,703. Notably, the Wife had debts of £200,073 including £120,267 of unpaid litigation fees.
Under the terms of the consent order, the Husband was due to pay a series of three lump sums to the Respondent Wife totalling £1,000,000 over the course of two years. The last payment fell due on 12 April 2022, at which point there would be a clean break.
There were two other relevant terms of the order. First, the Wife was to transfer her 49% interest in the family business to the Husband by 10 June 2020. Second, the Husband was to pay spousal maintenance to the Wife, in an amount which decreased at the time of each lump sum payment, terminating completely on the third such payment.
The basis of the Husband’s application, made on 2 November 2020, was that there had been a ‘Barder event’. Namely, that the value and liquidity of the family business had declined to such an extent as a result of the Covid-19 pandemic that it significantly changed the assumptions upon which the parties acted when entering into the FDR order of 12 March 2020.
Attached to the Husband’s application were various pieces of evidence, including a revaluation of the family business.
The Husband’s evidence was that the family business was in dire straits. Its value had fallen from £3,500,000 to £1,265,000; it had suffered a 38% fall in turnover and a net loss of £205,427 for the year ending 31 August 2020 (as against a profit of £156,978 the year before).
The effect of the consent order was that the Wife would receive 39.8% of the capital assets and 32.8% of the pensions.
The Husband’s application, if granted, would have had a wider impact than simply disturbing the provision for payment of the lump sums. As this provision was interdependent on others, such as the provision for periodical payments, the court would have to re-open the entire consent order and consider the matter afresh – with all the delay and cost such a step would entail.
What is a ‘Barder event’?
The facts in the case of Barder v.Barder (1988) A.C. 20 were extreme. A consent order had been agreed within financial remedies proceedings. The husband was to transfer his interest in the family home to the wife, with whom he shared two minor children.
About one month after the order was made, the wife killed the children and then herself. The husband sought leave to appeal the order, which was still executory at that stage (the necessary documents to effect the transfer had not been concluded). This was resisted by his former mother-in-law, who was due to inherit the wife’s estate.
The House of Lords allowed the Husband’s application. Lord Brandon described the fundamental assumption made at the time of settlement as being “that for an indefinite period, to be measured in years rather than months or weeks, the wife and the two children of the family would require a suitable home in which to reside”.
Lord Brandon set out four conditions that needed to be satisfied for a party to successfully challenge a final order because of an event that has occurred subsequent to it:
- The new event invalidates the basis or the fundamental assumption upon which the order was made.
- The new event should have occurred within a relatively short time of the order having been made. It is extremely unlikely that could be as much as a year and in most cases no more than a few months.
- The application to set aside should be made reasonably promptly in the circumstances of the case.
- The application if granted should not prejudice third parties who have, in good faith and for valuable consideration, acquired interests in the property which is the subject matter of the relevant order.
Distinguishing and defining a Barder event
In Cornick v. Cornick (1994) 2 FLR 530, Hale J considered a wife’s application for permission to appeal a final order. Under the terms of that order, she had received 51% of the assets, made up of a lump sum and periodical payments. The husband retained shares in a company of which he was deputy chairman. His options for further share purchase in the company, falling to him in future, were excluded from the court’s calculations.
At the time of the final hearing the share price was £2.17. At the time of the wife’s application for leave to appeal, it was £7.23. There had been further upward fluctuations, the most recent price at the time of the hearing was around £10.
With reference to the new and much higher share value, the impact of the final order was to give the wife 26% of the assets.
Hale J identified three possible categories where there has been a dramatic change in circumstances or comparative wealth of one of the parties since the final order:
- Price fluctuations of an asset. An asset which was taken into account, and correctly valued at the date of the hearing, changes value within a relatively short time owing to natural processes of price fluctuation. The court will not intervene, no matter how dramatic the natural process of price fluctuation is.
- Mistake. A wrong value was put upon that asset at the hearing, which had it been known about at the time would have led to a different order. Provided that it is not the fault of the person alleging the mistake, it is open to the court to permit the matter to be reopened. This category of ‘mistake’ has subsequently been developed and has its own set of guiding principles.
- A Barder event. Something “unforeseen and unforeseeable” had happened since the date of the hearing that has altered the value of the assets so dramatically as to bring about a substantial change in the balance of assets brought about by the order. Provided the four conditions set out by Lord Brandon are satisfied, the order may be set aside by the court.
The wife’s application in Cornick fell within the first category and therefore failed.
Hale J also clarified there was a further qualification to Lord Brandon’s criteria in Barder. She noted that it was “adiscretionary jurisdiction”. Thus, the court may be persuaded by other relevant factors to refuse a party’s application to appeal a final order even if the Barder criteria were satisfied, for example the availability of other remedies the use of which would prevent the unravelling of the entire order.
A successful and unsuccessful example of a party pleading there had been a Barder event
In Myerson v Myerson (2009) EWCA Civ 282 the husband unsuccessfully sought to appeal a consent order made at FDR wherein he was due to pay the wife a lump sum of £11m in five instalments, representing 43% of the matrimonial pot.
The husband, a fund manager, had a substantial shareholding in a company. At the time of the FDR appointment in February 2008, the share price was £2.99. The world was shortly to be gripped by the Global Financial Crisis, which sent markets into turmoil.
At the time of his application, in December 2008, the share price had crashed to £0.72. Taking this lower share price value, the wife had been given 86% of the assets.
The Court of Appeal refused the husband’s application. Not only did it fall within the first of Hale J’s categories, but the husband, a businessman, had voluntarily taken a speculative position in the consensual settlement. Thorpe LJ observed this “left him captain of the ship certain to keep for himself whatever profits or gains his enterprise and experience would achieve in the years ahead”.
Thorpe LJ went on to comment that the husband, with his expertise may yet take advantage of the changed economic conditions, “unusual opportunities are created for the most astute in a bear market”.
The court was anxious not to allow the husband to re-write his bargain. Further, the husband had other remedies, such as to ask the court to exercise its statutory power of variation
Critchell v. Critchell (2015) EWCA Civ 436 is one of the more recent cases in which a party has successfully deployed an argument that there was a qualifying Barder event. There, the parties were of very modest means. The wife was a hair stylist and the husband a self-employed painter/decorator.
The family home, with net equity of £175,000 was to be transferred to the wife, with an expectation that she reside there with the parties’ children aged 12 and 14. There was a charge in the husband’s favour for a lump sum equal to 45% of the net proceeds of sale of the property. The charge was only to bite on one of four triggering events, including remarriage and the younger child turning 18.
Within one month of the consent order, the husband’s father died and left him an inheritance of £180,000 and, additionally, the husband’s debt to his father for £85,000 was extinguished.
The wife successfully sought permission to appeal from the Court of Appeal. The original order had been dictated by need in the context of limited assets. It provided housing for the wife and children whilst ensuring the husband was able to pay off his debts in future. The inheritance fundamentally altered those assumptions.
Black LJ decided the facts were closest to a Barder situation and stated,
“the impact of the inheritance so soon after the hearing was…that the husband no longer needed his interest in the former matrimonial home to discharge his indebtedness because it was either wiped out (in the case of the debt to his father) or could be discharged from the inheritance (in the case of the mortgage). To my mind, this represented a change in the basis, or fundamental assumption, upon which the consent order had been made. It was not so much that the value of the parties’ assets had gone up but rather that there had been a fundamental change in the needs for which provision had to be made”.
Two notes on procedure
Where separating spouses agree that the payment of capital is made from one to the other over time, this could be included in an agreement in two ways.
Either a series of separate lump sums are payable or, alternatively, a single lump sum is payable by instalments.
The distinction sounds fine, but it is important. Only where the agreement includes the second of those formulations does the court have the statutory power to vary the amounts due.
Further, due to relatively recent changes in the Family Procedure Rules 2010, if a party wishes to challenge a final order, the correct route is no longer to seek permission to appeal it. Instead, an application to set aside the final order should be made.
This is significant because permission is not required and the application is dealt with by the same level of judge who dealt with the original application.
The court’s decision in HW v.WW
HHJ Kloss analysed the case with reference to the Barder criteria.
He determined that the Covid-19 pandemic was close enough to the making of the final order and, further, that the Husband’s application was made reasonably promptly in all the circumstances. Thus, the second and third Barder criteria were satisfied.
Was the impact of Covid-19 on the family business unforeseen and unforeseeable?
HHJ Kloss defined the question: “I must ask myself whether as at 12/3/20 if the Husband could reasonably have foreseen a risk that the Covid-19 pandemic might have a significant impact upon the trading position of the (family business)”.
The Judge took the question in two parts. First, from a subjective viewpoint. What did the Husband himself foresee? Second, from an objective viewpoint. What could the Husband have reasonably foreseen?
HHJ Kloss noted the Husband had been enjoying himself on the ski slopes of Austria immediately prior to the FDR, returning only in the late afternoon the day prior. The Learned Judge accepted that this rather casual approach told of the Husband’s sincere and subjective viewpoint, the Husband himself “did not foresee any real impact of the Covid 19 pandemic upon himself or his business”. However, this also indicated the Husband “was not closely following the unfolding crisis”.
The Judge gave the second part of the question careful consideration. The Judge put himself “in the Husband’s shoes” and asked what the Husband objectively should have foreseen at FDR. The Judge referred to a chronology of how the Covid-19 pandemic unfolded including when various lockdowns were imposed and financial assistance packages announced.
He found the risk to the Company was reasonably foreseeable for someone like the Husband, who was an experienced businessman carrying out international transactions. The Husband was a sophisticated operator, already familiar with business risks like currency fluctuations and the general move towards paperless offices.
HHJ Kloss gave additional reasons why the Husband’s application would fail, even in the event the court’s conclusion as to foreseeability was wrong.
Whilst the Covid-19 pandemic could be likened to a war, “with tentacles spreading across the world” and could, therefore, be a qualifying event in accordance with the first Barder criteria, it was not, in the context of this case, a Barder event.
In addition, the court could not rely on the Husband’s “doomsday predictions” as to predicted performance of the family business. This was particularly when compared against the late disclosure of documents he presented to his bank, produced only during the trial, which suggested there was greater liquidity and greater confidence in the anticipated performance of the family business than the Husband was willing to initially concede.
HHJ Kloss reiterated that to grant a set aside application was an exercise of the court’s discretion. Regard may be had to ‘other factors’ in declining to exercise its discretion and there were several factors here. The Husband chose to assume control of the riskier assets under the terms of settlement and “it is axiomatic that if a party chooses pressure and risk, it is a very steep hill to climb to avoid the downside of that risk”.
Moreover there were sound public policy reasons to preserve the finality of litigation. Notably, for the Husband’s present application alone the parties had together expended £113,032.
HW is another authority in a long line of case law where a party has unsuccessfully argued a final order should be set aside owing to a ‘Barder event’.
It is therefore a recent illustration of a classic proposition: a true Barder event is highly fact specific and remains exceptional.
We have a small favour to ask!
The Transparency Project is a registered charity in England & Wales run largely by volunteers who also have full-time jobs. We’re working hard to secure extra funding so that we can keep making family justice clearer for all who use the court and work within it.
We’d be really grateful if you were able to help us by making a small one-off (or regular!) donation through our Just Giving page.
Thanks for reading!
Pic courtesy of Aaron Shumaker on Flickr – thanks!